Guest Post: Eric Janszen: We Are Witnessing The Death Of The Dollar

Tyler Durden's picture

Submitted by Adam Taggart of Chris

Eric Janszen: We Are Witnessing The Death Of The Dollar

What do you get when the producer of the world's reserve currency takes on too much debt? Nothing less than the end of the US Treasury-based monetary system.

So says Eric Jansen, economic and financial market analyst and proprietor of In chronicling the decline of the global economy over the past decade, Eric has formulated a framework called the "Ka-POOM" theory, which endeavors to understand how the immense run-up in global debt will be resolved.

In short, it looks at the at the credit bubble that began in the early 1980's, started accelerating in 1995, and has now reached epic proportions. The amounts are so staggering at this stage that Eric believes it is too politically undesirable to let natural market adjustments clear them away - the magnitude of the deflationary pain this would create is simply unacceptable for politicians looking to get re-elected. The only other available option left is to service these debts via a dramatically devalued currency. Hence the key role the Fed is playing today.

The Fed is at the epicenter of this process, intervening heavily to keep the natural corrective market forces at bay. In this, it has a dual strategy. The first is to keep asset prices high (i.e., fight asset deflation), which it is doing by keeping interest rates historically low. The second is to keep wage and commodity costs under control, which it primarily does via devaluing the currency (maintaining a "weak dollar").

And, of course, through its intervention, the Fed is doing all it can to keep the current financial system in place to perpetuate the process for as long as possible. The end result is a fundamental shift in risk from Wall Street to the taxpayer.

So the big question is: how long can this last?  Is there a point at which confidence in the system breaks and market forces finally overwhelm the intervention?

Eric's answers: "Much longer than most people expect." And "Yes."

First off, as the most important central bank in the world, the Fed has supernormal powers. In theory, it can expand its balance sheet infinitely. It's ability to absorb massive amounts of new liabilities is theoretically limitless - much of which can be easily concealed from an accounting standpoint.

And since the US is both the world's largest economy as well as the provider of its reserve currency, other countries are compelled to support the current regime. A mortal crack-up in the US economy would deliver undue pain to all its trading partners, so they continue to buy Treasuries in sufficient amount to fund US economic activity.

But that's not to say they're happy about it. And here's where attention should be paid (and where the importance of gold comes in).

For much of the past century, the United States comprised approximately 54-58% of the global economy. Today, it's share has shrunk down to about 18%. Meaning: it's relative importance to the global system has diminished.

Issuing the world's reserve currency is a privilege that must be continually earned through transparency and sound stewardship - qualities the US has been in flagrant lack of in the past several decades as it has been blowing asset bubbles and running trillion-dollar deficits via incurring massive debts and increasing its money supply tremendously. So, even as they continue to support the current Treasury-backed monetary regime, the world's central banks have begun hedging their exposure.

After several decades of being net sellers, the world's central banks became net buyers of gold in the second quarter of 2009. As Eric puts it:

There was no plan B in the global monetary system when it switched over to the US Dollar reserve basis for global monetary reserves. The only fallback is gold. Gold is the only reserve asset that central banks hold other than dollars and to some extent euros - but it is mostly gold. So gold is the fallback. What I thought was going to happen is that, over time gradually, that there would be an increase at some point in gold holdings by central banks as they hedged the marginal increase and the number of Treasury bonds that they needed to hold as a result of conducting trade with the US and also simply maintaining the US economy through low interest rates and providing sufficient investment to continue to offer the US government.

What is very interesting to me is starting in the second quarter of 2009, right after the financial crisis is when global central banks became net buyers of gold which to me indicated that they had as a group, determined that it was time to more seriously hedge their dollar assets, even as they continue to buy Treasury bonds to increase their hedging.

Before that there were effectively two teams, there were the buyers who were countries like India and Russia and China, and the sellers which are most of your European countries and that structure of the gold market occurred and was maintained until the second quarter of 2009 and it shifted to a much broader base increase in the number of governments participating in the gold market including Saudi Arabia, Mexico and other allies of the United States.

Eric sees this move by central banks of positioning themselves closer to the door as a natural step to the inevitable endgame here, which is the dissolution of the US Treasury dollar-based monetary system. Due to entrenched special interests, politics, escalating commodity scarcity, and other factors - he does not see the US taking necessary corrective action before confidence in the solvency of the US and its currency collapses.

As such, Eric advises investors position themselves into gold and assets that take advantage of rising rents and energy prices.

Click the play button below to listen to Chris' interview with Eric Janszen (runtime 43m:46s):



iTunes: Play/Download/Subscribe to the Podcast
Download/Play the Podcast
Report a Problem Playing the Podcast

Or click here to read the full transcript

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
jomama's picture

slow motion train wreck, bitchez.

wanklord's picture

What’s all the uproar?
It seems that most of Americans never bothered themselves to learn living within their means, save some money, plan for the future, get a decent education and avoid credit at all.

The blame must be placed specifically on the so-called Baby Boomers, a failed generation who really enjoyed the prosperity of the 50s and 60s; instead, they focused all of their deprived intellect in experimenting with all types of drugs and having very promiscuous sexual lives. These people have done nothing for this country and now they are so scared of potentially not being able to collect their government entitlements (paradoxically, they are the majority).

Therefore, America as a broken society is now paying the consequences of its own greed, lack of common sense and stupidity.

Someone said that Americans are just a bunch of stupid animals easy to manipulate and subdue. The sooner the US economy collapses the better, so the ignorant populace will finally learn NOT to live beyond their means – and stop blaming the government, since they don’t give a crap about people’s grievances.

Kitler's picture

So it was sex and drugs in the 60's and had nothing to do with the wholesale purchase of the political process by those with wealth and lust for power resulting in the complete and utter destruction of the world's former economic superpower?

Interesting spin Herr Goebbels... but it's my guess that you are still bitter about never getting laid much.

So save your shiny pennies and nickels and dimes until you have enough to buy that new $100,000 home with CASH? Oops... it took you too long. Now because of the banksters easy credit the house costs $500,000 and your savings are worthless. Too bad so sad.

Then again you may be right... perhaps everyone should just go home, continue to take it up the ass, pay the bankers for their evil deeds, and just stop complaining.

Let me think about that one.

John Bigboote's picture

Hey wanklord,

So, if someone walked up to you and said "I want to be your slave", you would say "great, sign here"?

Nice. You're a real ass hole.

flacon's picture

"The second is to keep wage and commodity costs under control, which it primarily does via devaluing the currency (maintaining a "weak dollar")."


How are commodity prices kept under control by devaluing the currency? I thought just the opposite happens when you devalue a currency - it takes more of the devalued money to buy as much. Is he inferring that wages and commodities are in a deflationary spiral and are becoming cheaper - thus the need to prop them up with more paper dollars? I thought commodities are very expensive and Americans earn so much money that they priced themselves out of the market - and the powers that be want to push them down, not bring them up...???





Excursionist's picture

Yep - the error calls into question whether the author skipped the day they taught Macro 101.  Doesn't necessarily detract from the overall message, but the logic is specious.

Nate H's picture

In this case I agree, but in general, skipping Macro 101 might give some bright 20 something circa 2011, an advantage over the rest of us

FrankDrakman's picture

I quite disagree. The problem is not learning Macro 101; the problem is that so many economists/advisers/Fedsters seem to forget everything about it once they get into the financial kitchen. Keynes said run deficits in bad times, surpluses in good times. But virtually every politician everywhere seems to forget the second half of the prescription. Even in Slick Willie's time - you know, when we were enjoying the peace dividend and full employment, whilst we contemplated "The End of History" - the US only ran one "surplus", and that was more the result of some jiggery-pokery than honest accounting.

I studied engineering at university, but I also took some courses in economics. (Our econ prof loved us, as we actually knew math unlike his usual Arts&Science morons) The great thing about engineering is while you do study theory, you pay more attention to results. For example, physicists said it was impossible, in aerodynamic theory, for bumblebees to fly. Engineers saw the bees flying, decided there was something wrong with the theory.

So when I hear economic theorists tell me that printing money is really not a bad thing, I think back to Germany, Russia, Hungary, and others in the 1920's, Argentina in the 70's, Mexico in the 80's, Zimbabwe just a few years ago, and I say "Hmmmmmm...". People can spout theory all they want, but empirical observations say the bees are still flying, and the dollar will come crashing.

But, I will add Keynes' famous caveat: "Markets can stay irrational longer than you can remain solvent".

Gold, bitchez!

Henri-Gatien Comte Bertrand's picture

"i can make it rain no matter what the mother nature plans"


deflator's picture

 I think the author means that there is profit in devaluing the currency because most econ 101 students believe that the world is powered by money and more money will always produce more energy.

Our economic model inherently discounts the value of energy(your labor is energy) while simultaneously places a premium on money (that they can produce out of thin air).

Hephasteus's picture

I think you are confusing someone who jacks off and watches suzy fucking orman with a real live sentient being.

s2man's picture

"How are commodity prices kept under control by devaluing the currency?"

By keeping the prices from deflating.  Read the context. Asset deflation is their boogie man. To boil it down, the bankers cannot, CANNOT have the assets, physical and financial, deflate, because they have loaned against them. 

This is why I am betting on inflation to hyperinflation instead of deflation.  Long phys, short currency.

Seer's picture

"To boil it down, the bankers cannot, CANNOT have the assets, physical and financial, deflate, because they have loaned against them."

People don't understand that DEFLATION is what the rich fear most.  Whether it's primary or not, loan failures ARE a huge concern.  I'd say that there's an even DEADLIER casualty, and that's that when the house of cards is no longer valued that their entire power structure crumbles: they stay in power because they control the assets; if assets aren't worth anything then their power is essentially gone.

That stated, inflation also isn't a thing of beauty to them.  In these days it's more readily apparent that inflation could, unlike in the past, roll right over the edge into hyperinflation.

Rock and hard spot.  This can NOT work out because the entire system was predicated on infinite growth (somewhere along the line there HAS to be meaningful physical backstops to our currencies [the article points this out] and we're on a finite planet.

CalFord's picture

Wrong Kilter, moral decay must occur first.

Chuck Walla's picture

Then again you may be right... perhaps everyone should just go home, continue to take it up the ass, pay the bankers for their evil deeds, and just stop complaining.


Kitler, I think many will continue to misunderstand their real circumstances. While I disagree that Americans are specifically easy to manipulate, it seems to cut across all cultures.  Indeed, many thought this system would go on forever.  Obvious, basic economics and critical thinking are avoided in school.


As for Baby Boomers, Obama's parents bit the Commie apple hard and indoctrinated their child in it. Steeped his brain in Socialism and now we reap the whirlwind because everyone was too afraid to look behind the "man" to see who he really was.


The Leftward Bully Boy of PC has done its work. This is the coming insurrection. Eric doesn't account for that.

Pure Evil's picture

Wanklord, Cut and Paste much?

CIABS's picture

hey, wanklord polished his literary piece de resistance for a long time, and since then he has been sharing it with us, repeatedly, as a zerohedge comment.

BigDuke6's picture

If that got you fired up then you may want to look at the link and scroll down to the second photo....

goddam whiteman as a chinamans flunky... next its gonna be 10 chinese pornstars mullahing jenna jameson...

sorry for out of date actress example....

saulysw's picture

An interesting find...

Buckaroo Banzai's picture

Wanklord is one of the finer Zerohedge trolls.

Well trolled, Lord Wanker!

JW n FL's picture



I am sorry fine Sir.. you simply have to, too many people that know and respect you.. to be considered any kind of serious Troll!

But if is make you feel better..


Bla! BLA! BLA!!! fuck you! cock sucker!! asshole!! mother fucker!!

Hephasteus's picture

"Hey what about me?"

When the 99 percent decide to train your mom. I'm joining.

Oh sorry thought you were asking for trolling tips.

JW n FL's picture!

yeah... ummm you are not even close to a troll even when you try to stir the pot.. the quality of your fiber.. just bleeds thru and the edge needed to cut.. is dulled by your wit and grace, sorry bro!

JW n FL's picture



As 16 police officers were arraigned at State Supreme Court in the Bronx, incensed colleagues organized by their union cursed and taunted prosecutors and investigators, chanting “Down with the D.A.” and “Ray Kelly, hypocrite.”

JW n FL's picture

Occupy Phoenix Veterans with AR 15s keeping the Occupation Safe!


Hephasteus's picture

I know there will be jewish hero's before it's all over. Just like there were hero's who protected them in times past.

Speaking of holocausts.

Germany is burning battlefield 3 disks in fireplaces and ovens. Plastering their news with details of it's spyware programs. Signing petitions for legal action.

Forcing amazon to take back 90,000 euros worth of opened illegal software (so far).

It's another german lolocaust.

NWO spokesmen for Electronic Farts reportedly said.

Damn Germany!!!, You scary!!!

buyingsterling's picture

"Someone said that Americans are just a bunch of stupid animals easy to manipulate and subdue."

I think that 'someone' was Wanklord, in his last post.

chubbar's picture

You really going with the idea it's the fault of a whole generation? Really?

I was 13 when the 70's hit, making $1.80/hr washing dishes part time after school. I missed the whole "fee love" 60's. Primarily because my mom wouldn't let me out after 8pm and of course I hadn't hit puberty yet.

I served 6 years in the military, although there wasn't a war on and no draft. So I guess I served my country, given what was going on at the time in the world.

Not sure why you would feel that I'm your enemy or that I had any more say on what is going on in this country than you do.

What are you going to say to the guy who takes your position against your generation in 20 years? That you railed vociferously against the unfairness of it all on a blog? Threw some rocks at the police? Just wondering how you figure you personally are going to change the world because I couldn't figure out one friggin thing that I could have done that would have made a significant difference on my end. Good luck though.

Reese Bobby's picture

This guy has chunks of wanklord in his stool...

Pure Evil's picture

I thought military vetrans only chewed nails and shit rivets.

If he's got chunks of wanklord in his stool, he better make an appointment with Dr. Assy McGee.


Dr. Assy Mcgee

Seer's picture

Your post could just as well been written my me.  Ditto all around: I technically only served 4 years USMC (though 2 were call-back years at the end).

Continually blaming others doesn't get us up the ladder of evolution.  That next rung relies on us being adults and figuring out how we're going to manage to live on a finite planet without killing ourselves: sorry techno-NASA-heads and religious head-bangers, but you're stuck here in the real world, if you don't like it then please make way for the rest of us who don't suffer from fantasies.

Reese Bobby's picture

The government is the credit drug dealer genius.  The blame lies with the vote buying welfare system.  The "baby boomers" are mainly beneficiaries.  The failed Christian in me thinks you are a stupid fuck.

sun tzu's picture

The elites use the poor, unions, and government bureaucrats as a battering ram against the middle class. 

Reese Bobby's picture

True.  The best enslavement is disguised as "generosity."  P.S.  Your avatar is a little disturbing, man...

unerman's picture

Homophobic simpleton? Me thinks so.

cynicalskeptic's picture

No... the 'elites' promote conflict among the rest to keep them distracted; otherwise the guillotines would be running non-stop.  


The 'Tea Partiers' disgusted with 'government' SHOULD be more disgusted with the elites pulling government strings (and funding their own group).  How did anger with banks get morphed into tax cuts for millionaires?  (good job by the Koch Brothers). #OWS would not have happened if Obama had even tried to hold people accountable for the mess they created instead of continuing the Bush bailouts.  Both the right and left are fed up and furious - and are starting to catch on as to who's screwing them.  BOTH political parties in the US are owned by their largest contributers and serve THEM, not the people.  But the people have caught on.

The problem is that the elites got TOO greedy. You have to leave some crumbs on the table and keep people busy so they don't realize how bad off they really are.  When the rest of the population is hungry and unemployed, things get ugly.  Economically driven revolutions happen when people are desperate and feel that government no longer cares about them - that government itself is corrupt and serves only the elites.  Such revolutions do not end well - France in 1789, Russia in 1917, the current Arab Springs......   

Those that brought down the world's financial system - and who are looking to have the masses make good THEIR losses - will not find shelter when the whole world is calling for their heads.

unerman's picture

Exactly. Still too many simpletons here, blaming the liberal commie democrats or the right wing fascist republicans.

Both parties work for the same small group of people, and the odds tell me it is not you, it is not us.

upWising's picture

To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy's resistance without fighting.

-Sun Tzu, the Art of War


I think I need to buy a gun's picture

gold rush season 2 discovery channel......

Snidley Whipsnae's picture

"gold rush season 2 discovery channel"

Anyone considering mining stocks should not miss this one.

It should be titiled "How Not To Operate A Gold Mine"...or "How To Dig Some Big Ass Holes In The Ground"

If they had invested the $275K that they started with in physical gold they would be way ahead.

trav7777's picture's not a show about gold mining.  You can watch those on History or Science.  They are very boring.  The people are all geologists and serious businessmen.

Gold Rush is a reality show with a bunch of tools who do stupid shit and fight, so you can laugh at them and gasp at the trainwreck that they jointly and severally are.

If YOU were an "investor" like that Texas guy bullion dealer supposedly is...would you in ANY WAY invest in these idiots after seeing how much gold they pulled out in season 1?  After seeing how utterly laughable they were?  Of course not.  The whole thing is backstopped by Discovery.

I mean, you can read all these boring reports on ore grade studies and geosurveying from real gold miners, the high-beta juniors operating in Brazil or Ghana or lots of places.  These guys were trying to get onto some piece of land in Yukon and didn't even get a water permit.

The show should be renamed "Watch idiots dig big holes and wreck shit"

Kina's picture

focused all of their deprived intellect in experimenting with all types of drugs and having very promiscuous sexual lives.

And loving it.


But wait, I'm a baby boomer. Own my home, no debt, saved cash, PMs, food. And self funded superannuation fund. Though I am Aussie not American.


Just wondering if this baby boomer thing is more myth than truth. Maybe it was an era of prosperity squandered by TPTB.. the continuing rise of the banksters and military industrial estate.


Waterfallsparkles's picture

I think Boomers paid more than their fair share in taxes to the Government.  The problem the Government is having now is that most of the Boomers are Retiring and are not sending Trillions into the Government coffers thru Taxes.  So, the Governments income base has shrunk.  No more Government spending on the Boomers backs.

Now the Government spending is at its all time high and huge Boomer population is Retiring and not paying taxes into the Government to pay for it.

Seer's picture

The PROBLEM, the elephant in the room, is that growth has stopped.  Growth was feeder of the Ponzi.

The increase in govt spending (federal, local govts are hacking) is primarily due to a transfer of debt from the private sector financial system to the general public/tax payers.  The linkage of the financial sector and the (federal) govt is nearly invisible, making the two seem as one.

High Plains Drifter's picture

look asshole.  i paid into ss for over 40 years. i want my frickin money these american gen x and gen y crybabies need to get their asses out and get work. that is the way we roll.... i am going to get what's coming to me, and that is all there is to it........

Idiot Savant's picture

I'm sick and tired of hearing social security called an entitlement program. I suppose for some it is, but most of us have paid into it since our first day of work. SS is only a hot button issue because it's no longer running a surplus and the government is having to pay back what it's stolen. I suppose the fair and equitable solution is to cancel the program and give everyone a full refund, with interest. Agreed?